FCC rule relaxing media ownership limits tossed

Along with questions about privacyand freedom of the press, the News of the World hacking scandal that engulfed Rupert Murdoch’s sprawling media empire this summer also brought concerns about media consolidation into the mainstream spotlight. On July 7, just days after the hacking news broke, the 3rd Circuit published an opinion that, for now, allays fears that a rule proposed by the Federal Communications Commission (FCC) in 2008 may have allowed for greater media consolidation.

The FCC’s 2008 Media Ownership Order set aside an all-out ban on newspaper/broadcast cross-ownership, instead adopting a test to consider merger proposals on a case-by-case basis. While the 3rd Circuit didn’t address the merits of the new Newspaper-Broadcast Cross-Ownership (NBCO) rule, it tossed out the approach on notice grounds. It’s a blow for broadcast and newspaper interests, which had petitioned for a stronger relaxation of the ban, and at least a temporary triumph for public interest groups that had been fighting the rule change.

Now, all eyes are on the FCC as it incorporates the remand into its 2010 quadrennial review of media ownership rules that are expected later this fall.

“The FCC should be pleased because this could have had a much broader impact on the pending media ownership proceeding,” says Steve Augustino, a partner at Kelley Drye. “The opinion leaves the FCC wide discretion to complete the current review however it wants, which is significant because the commissioners are more concerned with media consolidation than the last commission.”

Nary a Notice

The FCC must review its media ownership rules every four years and modify or repeal them if they are not in the public interest, which is determined by competition, diversity and localism.“

To say [the proceedings] are contentious would be a huge understatement,” says Corie Wright, policy counsel with the public interest group Free Press. “All have ended up in litigation to varying effect.”

Prometheus Radio Project v. FCC, or Prometheus II, concerns rule changes in the commission’s 2008 Media Ownership Order stemming from its 2006 review. (In Prometheus I, the 3rd Circuit remanded to the FCC rule changes the commission attempted to adopt after the 2002 review.)

The 3rd Circuit’s July 7 opinion in Prometheus II rejected the rule change, finding that the FCC failed to meet the notice and comment requirements of the Administrative Procedure Act. The record reflects several instances of “irregular” procedure, as the court put it.

In July 2006, the commission published a Final Notice of Proposed Rulemaking (FNPR) seeking comments on how to address the 3rd Circuit’s remand in Prometheus I. The FCC relied on two sentences asking about ownership limits in local markets as adequate notice of the NBCO rule. Commenters complained that the lack of proposals and suggestions in the FNPR would limit their submissions.

And the FNPR wasn’t the only instance of inadequate notice the 3rd Circuit flagged. The FCC released 10 economic studies in July 2007 on media ownership and allowed 60 days for comments. In November 2007, then-FCC Chairman Kevin Martin unveiled his proposal for a new NBCO rule in a New York Times Op-Ed and simultaneous press release. He set a 28-day comment period instead of the usual 90 days.

“The hours before the [Dec. 18] final vote were a scramble,” the 3rd Circuit noted in its Prometheus II opinion. The commissioners received the order the night before the vote, and revisions of the NBCO rule were still being circulated the morning of the vote.

The court vacated the NBCO rule and remanded it back to the FCC.

“I don’t know that this decision is going to change much [in the forthcoming proposed FCC ownership rules] because a number of the current commissioners have said they didn’t support [the previous changes],” says Dan Kirkpatrick, an attorney at Fletcher, Heald & Hildreth. “But I think the decision will at least lead to them putting out a more specific notice of proposed rulemaking to satisfy procedural requirements the court set up.”

Diversity Measures

The remands will be folded back into the 2010 review and reflected in proposed rules expected by the end of the year.

“I’m expecting we won’t see major changes,” Augustino says. “If anything, we’re more likely to see a little bit of a push on localism and diversity.”

On diversity, the 3rd Circuit “reserved some particularly harsh words for the FCC,” Wright says. In Prometheus I, the appeals court ordered the FCC to address the advancement of broadcast ownership by women and minorities, criticizing the commission’s prior attempts. In its Prometheus II opinion, the court again expressed dissatisfaction, writing, “The Commission has in large part punted yet again on this important issue.”

While the FCC’s 2008 Diversity Order proposed rules aimed at promoting minority and female ownership, they were designed to provide opportunities for “eligible entities” as determined by revenue. The 3rd Circuit called the “eligible entities” definition “arbitrary and capricious.”

The court also noted that it would retain jurisdiction over those issues in future proceedings, which likely means the 3rd Circuit will host future litigation over the 2010 media ownership review.

“That was significant,” Augustino says. “It increases the chance that the 3rd Circuit is going to review all the media rules that come out of the proceeding.”